logo  
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

Breaking Up Microsoft (MSFT) is a No-Brainer

  +Follow December 12, 2013 8:44AM
Share:
Tickers Mentioned:

In one of the most famous scenes of the movie Wall Street antagonist Gordon Gekko explains to neophyte trader Bud Fox why he decided he was going to liquidate the fictional Bluestar Airline: “Because it’s wreckable.”

He did not mean it’s wreckable in the sense that something should be destroyed because it can be destroyed, but rather that that the company was worth more to the world in pieces than as a whole. And actually, with large companies, this is very often the case.

The kernel of truth in the unrepentant capitalist Gekko’s statement is that often, monolithic companies have become lumbering giants, inefficient behemoths that lack focus and waste billions supporting an overweight structure.

Sound like Microsoft (MSFT) ? And the truth is if Microsoft were ever to be broken up, billions in potential value could be unlocked.

Kill the Beast! Kill the Beast!

Microsoft is one of the most unwieldy companies on the planet. It is a burgeoning mass made up of a famously uncooperative mass of disparate departments, united in name only.

There’s their software division. There’s their video game division and the reasonably successful Xbox series. There’s the unmitigated stinking disaster that is Bing. Not to mention tablets and the expected foray into smartphones following the Nokia acquisition.

That’s a lot of different directions to go in. And it comes at a time when the company is about to lose its bald head, the much derided Steve Ballmer.

The question for stockholders is what the most profitable decision is: trying to find someone who can maneuver the company over all that ground, or end the once undisputed king of tech into smaller, less dominant, but theoretically more nimble compenents?

Not “One Micorsoft,” But Two, or Three…

Several months ago Ballmer announced the “One Microsoft” initiative, aimed at directing the company in a coherent direction. At the same time, pundits were already imagining what it would look like to take the ax to Microsoft and split it like a cord of wood.

Analysts imagined at first a clean split of the company: one consumer tech (Windows, Office, Xbox) and one business-centric (SharePoint, Azure, Dynamics).  But since fall 2013, analyst opinion has begun to include the ideas of splitting Microsoft into even smaller, more specialized parts.

Jim Cramer suggested splitting Microsoft into three businesses: a software business; and “entertainment” business to handle the likes of Xbox; and a cellphone business – essentially, Nokia with more capital. Presumably, this would mean ending the multi-billion dollar failure of Bing, a proposition some of Ballmer’s possible successors have floated.

The value unlocked in this kind of breakup would be massive. Killing Bing alone would put an end to billions in lost income. And refocusing software could help reasserts Microsoft’s position in operating systems, a market currently dominated by Apple Inc. (AAPL) .

But it’s not just pundits calling for Microsoft’s head. It’s also one of the founders.

On Nov. 4 Microsoft co-founder Paul Allen’s money manager, reportedly speaking for Mr. Allen, called search and Xbox a “distraction” and recommended spinning them off.

How Much Could be Unlocked?

That’s the million dollar question. Or, more likely, multi-billion dollar question.

Rick Sherlund, an analyst at Nomura Securities, suggested if Microsoft spun off Bing and Xbox, they could increase their dividend to a whopping 6 percent, making it the highest-yielding large cap tech company for stockholders.

Others have argued that an “online services” division, comprised of Bing, MSN, and adCenter costs the company $8.1 billion a year in losses. Spinning off those companies alone would allow a massive buyback, dividend increase, or possibly both. The exact value derived from a breakup is uncertain, but there's little reason to believe it wouldn't total in the billions.

Is There a Reason to Keep Microsoft Whole?

Breaking up is hard to do, and in the case of multibillion dollar behemoths, is almost irreversible. Once the decision is made to split, the company can’t really go back on it. Once Xbox or Bing is sold off to another company, you can’t exactly ask for it back. So is there value in keeping it together?

To be sure, Microsoft’s stock this year has not been an outright disappointment. A 37.98 percent return on the year has it outpacing the gains of the otherwise robust S&P 500. And only the largest of companies can do things like institute $40 billion dollar buybacks.

Breaking up also might be easier said than done. Preston Gralla of ComputerWorld argues that Bing, however costly, is too integral to their other products to ever be killed.

But just because Microsoft has increased in value, and just because the poisonous Bing has wormed its way into several other lines, does not means more value won't be extracted long term form extrication. revenue does not mean more could not be unlocked via breakup.

And it’s almost impossible to argue that Microsoft’s incredibly disparate departments work better together. The corproate culture there is notoriously toxic, and there has been little indication "One Microsoft" has rectified this.

Microsoft should pick their next successor soon. The best thing he or she could do is take Microsoft and take the hammer to it.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


Liked What You Read? Join Equities.com and Connect With Your Favorite Financial Experts FOR FREE! Members of Equities.com gain access to our leading financial news and content, active social investment community, proprietary research tools including the 2014 Small-Cap Stars, E.V.A. reports and more.

Results for MSFT
Charles Rankin
20 Sep 14 14:45:17
@WSJ Perhaps having a lot of $MSFT stock had a little something to do with it too.
Rafa Marquez
20 Sep 14 14:29:39
RT @TweakTown: .@microsoft delays @Xbox launch in China, as global expansion struggles $MSFT, $MSFT http://t.co/4NhoLSd6Fb http://t.co/9WOn…
TweakTown
20 Sep 14 14:27:36
.@microsoft delays @Xbox launch in China, as global expansion struggles $MSFT, $MSFT http://t.co/4NhoLSd6Fb http://t.co/9WOnImKdUf
12Stocks.com Tech
20 Sep 14 14:02:45
Microsoft pushes back the Xbox One's launch in China.. http://t.co/rR4qOzEJ2r $MSFT #tech #stocks
12Stocks.com Tech
20 Sep 14 14:02:29
Microsoft Delays Xbox One's China Launch Without Explanation.. http://t.co/AZK9ZX6V6z $MSFT #tech #stocks
Jigesh Mehta
20 Sep 14 13:33:47
RT @firstadopter: $MSFT now offering free 30GB of cloud storage space forever. Limited time promo -> https://t.co/pBntTCIHqY http://t.co/cx…
D4PC-MI
20 Sep 14 13:32:18
#Buy $DNAX #DNA #Energy #Drinks #New #CEO #Real #Experience > $FNMA $HEMP $PMCM $PHOT $PLPL $CBIS $JPM $GS $MS $TSLA $FB $TWTR $GOOG $MSFT
Lounge Lizard
20 Sep 14 13:29:59
RT @RetroWallSt: don't like the other list: $AMGN $AEO $COST $DECK $IBM $MSFT $PANW $RRGB $UUP $YUM other possible long setups
Timothy Collins
20 Sep 14 13:29:31
don't like the other list: $AMGN $AEO $COST $DECK $IBM $MSFT $PANW $RRGB $UUP $YUM other possible long setups
Chiayu Chen, MD
20 Sep 14 13:27:30
RT @TheStreet: $MSFT to close the Microsoft Research Lab, its Silicon Valley R&D operation, as it plans to lay off 2,100 workers http://t.c…
Zubeyr Kamil Açıksar
20 Sep 14 13:05:27
RT @TheStreet: $MSFT to close the Microsoft Research Lab, its Silicon Valley R&D operation, as it plans to lay off 2,100 workers http://t.c…
Luke Pergande
20 Sep 14 13:04:26
RT @TheStreet: $MSFT to close the Microsoft Research Lab, its Silicon Valley R&D operation, as it plans to lay off 2,100 workers http://t.c…
Sterling Holmes
20 Sep 14 13:03:37
RT @TheStreet: $MSFT to close the Microsoft Research Lab, its Silicon Valley R&D operation, as it plans to lay off 2,100 workers http://t.c…
Todd Pace
20 Sep 14 13:00:42
For a small fee you get @super_trades' watchlist & LIVE chatroom: http://t.co/QlEKHJaOxU $AAPL $TWTR $FB $BABA $YHOO $LOCO $GPRO $MSFT $GRPN
Zombie Bombie
20 Sep 14 13:00:39
RT @TheStreet: $MSFT to close the Microsoft Research Lab, its Silicon Valley R&D operation, as it plans to lay off 2,100 workers http://t.c…
George V. Hulme
20 Sep 14 12:59:44
RT @howardlindzon: . @alphatrends: *VIDEO* http://t.co/7VN9cqzKWj Stock Mkt Analysis for Wk Ending 9/19/14 $SPY $AAPL $BABA $IWM $XLF $GLD …
TheStreet
20 Sep 14 12:59:06
$MSFT to close the Microsoft Research Lab, its Silicon Valley R&D operation, as it plans to lay off 2,100 workers http://t.co/FK8mpiXTmt
DeidreZune
20 Sep 14 12:46:31
$BABA debuts on the NYSE as the 12th LARGEST #MARKETCAP Co in the S&P 500 >> $IBM $ORCL BUT BELOW $AAPL $GOOGL $MSFT http://t.co/jQ0DR3caoe
Stock Moo
20 Sep 14 12:43:39
$msft: Microsoft Delays Xbox One's China Launch Without Explanation http://t.co/7Nk7X1Gvox
The Chairman™
20 Sep 14 12:41:54
RT @MarketWatch: $MSFT is up twice as much as the S&P 500 in the past year: http://t.co/lKR3VRyiYb http://t.co/qeeqscMDnQ
Michael Samhan
20 Sep 14 12:17:57
09-21-14 Trade Plan http://t.co/vKnuVVYHDa $DIA $QQQ $XLF $JPM $C $FB $GOOGL $BABA $TWTR $IBM $MSFT
PandA Trader
20 Sep 14 12:11:18
Crazy Secret to Picking Stock Winners? Buy High, Sell Higher http://t.co/1zfgf1txRs via @daily_finance $AAPL $MSFT $HD
Stock Wire
20 Sep 14 12:06:00
Microsoft Corporation (MSFT) Layoffs; Is It heading for a Hat-Trick? $MSFT http://t.co/vM2G8ucWWj
bwilliam46
20 Sep 14 11:58:23
@geoffreyfowler (cc @farantzos) - The @nokiaus #WindowsPhone is better than any iPhone. Cortana way better than Siri, too $msft
Mark Weaver
20 Sep 14 11:19:08
"(my kids) play on their $AAPL MacBooks while their $MSFT Xbox sits idle."- @barronsonline Randall Forsyth
Piotr Górecki Jr
20 Sep 14 11:18:32
$MSFT stock since the beginning http://t.co/nfCnq7tOXV
FonsieTrader
20 Sep 14 10:40:12
$MSFT Minecraft Deal Shows Desire for Intellectual Property Is No Game http://t.co/5HWWbdICBU
Media Sentiment
20 Sep 14 10:39:02
$MSFT received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 8
12Stocks.com Tech
20 Sep 14 10:02:47
ISIS Uses 'GTA 5' In New Teen Recruitment Video.. http://t.co/H2AbKTCTVs $MSFT #tech #stocks
12Stocks.com Tech
20 Sep 14 10:02:30
Minecraft Deal Shows Desire for Intellectual Property Is No Game.. http://t.co/1C7LkU9IVv $MSFT #tech #stocks
Stock Wire
20 Sep 14 09:57:01
Will Microsoft Corporation (MSFT) Lay-Off 2900 More People in the Next 9 ... $MSFT http://t.co/miHF7JVwFx
Askin Akhan
20 Sep 14 09:49:35
RT @ryanmlowery: Will Microsoft kill off the Minecraft marketplace? http://t.co/v0wMwpHNyg #gaming #tech #minecraft $msft
REDRASHID EL AMIN
20 Sep 14 09:45:59
RT @ryanmlowery: Will Microsoft kill off the Minecraft marketplace? http://t.co/v0wMwpHNyg #gaming #tech #minecraft $msft
AfterDawn.com
20 Sep 14 09:45:23
New owner Microsoft promises to bring Minecraft to Windows Phone $MSFT http://t.co/rE4U5gbwFi
Polina Marinova
20 Sep 14 09:44:22
This is precious. RT @FortuneMagazine: "Microsoft to 5th-grader: We’ll make Minecraft better http://t.co/iXsYahUMZU $MSFT"
Stock Moo
20 Sep 14 09:43:38
$msft: Minecraft Deal Shows Desire for Intellectual Property Is No Game http://t.co/5hFPmyAHKk
Hammer D. Lane
20 Sep 14 09:36:14
$MSFT is bullish on Africa? Ok.
Hannah Emmanuele
20 Sep 14 09:34:14
RT @LouisColumbus: Microsoft adds 3D printing via cloud to application http://t.co/J12DwyGke0 via @pcworld 3DPrinting $MSFT
Heath Sterling
20 Sep 14 09:08:51
RT @stock_coach: #Cloud #stock #alerts $CRM #WDAY $FEYE $MSFT find them at http://t.co/ID7UtQQT2F #thecoachsroster
Gennario Veltaine
20 Sep 14 09:07:47
A 10 Year Old's Take On Microsoft's $2.5 Billion Purchase Of Minecraft http://t.co/HadGByMtF0 $MSFT, $AAPL, $AMZN, $GOOG, $GOOGL
CoachNina
20 Sep 14 09:02:04
RT @stock_coach: #Cloud #stock #alerts $CRM #WDAY $FEYE $MSFT find them at http://t.co/ID7UtQQT2F #thecoachsroster
parkerventures
20 Sep 14 09:01:57
RT @MarketWatch: $MSFT is up twice as much as the S&P 500 in the past year: http://t.co/lKR3VRyiYb http://t.co/qeeqscMDnQ
WinningStockCoach
20 Sep 14 09:00:00
#Cloud #stock #alerts $CRM #WDAY $FEYE $MSFT find them at http://t.co/ID7UtQQT2F #thecoachsroster
Ryan Lowery
20 Sep 14 08:56:27
Will Microsoft kill off the Minecraft marketplace? http://t.co/v0wMwpHNyg #gaming #tech #minecraft $msft
Evener Investment
20 Sep 14 08:55:47
RT @howardlindzon: . @alphatrends: *VIDEO* http://t.co/7VN9cqzKWj Stock Mkt Analysis for Wk Ending 9/19/14 $SPY $AAPL $BABA $IWM $XLF $GLD …
Day Trade Alerts
20 Sep 14 08:54:46
RT @ivanhoff: "@JBoorman: Weekend Review and Watchlist http://t.co/QLCkDDiKcF $ATVI $MSFT $AA $MAR $DIS $DTV $GBX $INTC $SLXP $SWKS"
howardlindzon
20 Sep 14 08:52:10
. @alphatrends: *VIDEO* http://t.co/7VN9cqzKWj Stock Mkt Analysis for Wk Ending 9/19/14 $SPY $AAPL $BABA $IWM $XLF $GLD $MSFT $TSLA $QQQ
Latiff Cherono
20 Sep 14 08:49:16
RT @cpuzder: @fxshaw @thurrott @WinObs Indeed, folks need to remember that $MSFT is a *software* company. They don't need to be exclusive.
ivanhoff
20 Sep 14 08:49:02
"@alphatrends: *VIDEO* http://t.co/lJOHI0jNTh Stock Mkt Analysis for Wk Ending 9/19/14 $SPY $AAPL $BABA $IWM $XLF $GLD $MSFT $TSLA $QQQ"
Stockaholics
20 Sep 14 08:47:49
$ELRA closed up 288.89% on over 315 MILLION Volume! Get our new penny stock picks: http://t.co/qloC4OFNEn $NTEK $MSFT $MWIP
				
				
  +Follow December 12, 2013 8:44AM
Share:

Comments

 

blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.